Asian markets are set for a muted start on Tuesday as traders stayed on the sidelines waiting for the Federal Reserve meeting and possible delay of trade tariffs to be imposed on Chinese goods this Sunday.
A delay in the tariffs deadline could be part of the phase one trade deal under the discussion, which is built largely around a significant increase in Chinese farm good purchases in exchange for a reciprocal rollback in existing tariffs in place. Chinese commitment on other key issues such as intellectual property, state subsidies and currency are likely to be addressed by US negotiators as well.
On the macroeconomic front, the Chinese economy is struggling to navigate through the manufacturing sector downturn, while fighting against rising inflation.
China’s consumer price index (CPI) unexpectedly surged to 4.5% in November, which was higher than market expectations of 4.2%. This is the highest inflation reading seen in over eight years largely due to the more than doubling of pork price as African swine fever swiped the country.
Unusually high inflation may inhibit the central bank’s ability to carry out monetary stimulus. As we move into the CNY holiday season, demand for meat is likely to reach a seasonal high and thus inflationary pressure is likely to increase further.
On the other side, China's PPI data released yesterday fell 1.4% year-on-year, slightly better than market expectations of a 1.5% decline. This suggests that external demand remains muted and there is a lack of price pressure on factory outputs.
Crude oil prices traded slightly lower on Tuesday. Market has gradually priced-in a potential OEPC cut since mid-November and therefore ‘buy on expectation, sell on the facts’ was proven right again this time. Traders are also holding back ahead of the FOMC meeting and the impending tariff deadline on 15 December.
Oil market could go into consolidation phase as good news is being well digested and priced-in. Looking ahead, oil prices are likely to be more data-driven and move in tandem with demand forecast.
Crude Oil Brent - Cash
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Margaret Yang Yan